Observations on Nigeria’s Continuing Reserves Accumulation

Mexican Peso bills are arranged for a photograph with a U.S. one dollar bill in Mexico City, Mexico, on Wednesday, Jan. 27, 2016. Mexicos peso, the worst performing major currency in 2016, is poised for a rebound by the end of this year, according to its most-accurate forecaster, Sireen Harajli, a strategist for Mizuho Bank Ltd. who was the best analyst for the peso in the fourth quarter, according to a Bloomberg ranking. Photographer: Susana Gonzalez/Bloomberg

CBN data show that gross official reserves increased by US$1.5bn in February on a 30-day moving average basis to US$29.6bn. The authorities have now achieved reserves accumulation of US$5.7bn since end-October.

By not formally throwing any light on this marked turnaround, they have fuelled the rumour mill. On surer ground we can point to loan disbursements: by the Exim Bank of China in the third quarter of 2016, US$600m by the African Development Bank in November and last month’s successful US$1.0bn Eurobond sale.The semi-official explanation for the recovery is centred around a pick-up in crude oil production to 1.90 mbpd with effect from November.

Statements over the past week by officials have put output back at 2.1 mbpd, and even 2.2 mbpd. The price has been stable over the period, at US$53/b to US$56/b.

We are aware of appearing too trusting of official data. However, the trend follows what one should expect: oil revenues increase so reserves increase.

The accumulation will have stiffened the resolve of the authorities to maintain their exchange-rate policy.

The CBN circulars of 21 February on an additional forward sale of fx and on sales for retail such as personal travel and medical bills notwithstanding, its own supply to the market remains modest.

Nigeria’s import cover at the end of February has strengthened to 9.3 months for goods and 7.0 months once we include services, based upon the balance of payments for the 12 months through to September 2016.

We favour this vanilla measure of international liquidity because Nigeria has a relatively strong external balance sheet and because the data are not generally available for other ratios.